Human resources managers are having a hard time integrating the organizational cultures of merging companies, a multi-industry survey found.
Sixty-nine percent in a Hewitt Associates poll involving 218 big U.S. companies, including six in the rapidly consolidating financial services industry, said that was the "top challenge" in mergers.
Next on the list was keeping employees focused, followed by integrating their benefits.
Corporate integration was taking longer and costing more than expected, the executives said.
"The tightness of the job market makes these issues more important now," said Allen Steinberg, coordinator of the mergers and acquisitions team at Lincolnshire, Ill.-based Hewitt. "The people part of the transactions is becoming more important."
Not only more important, but a sensitive topic-because of fears of shaking up employees or tipping off competitors. "It's like touching fire," said Steve Leyden, a spokesman for Bank of New York, one of the six financial services companies in the survey.
The other four were Wachovia Corp., SouthTrust Bank, National Commerce Bancorp., Bank United of Houston, and American Express Financial Advisors.
Each of the 218 companies surveyed had more than 1,000 employees, and 74% of the companies had been involved in one or more business combinations in the previous two years. Some of the problems they experienced:
Timing. Organizations generally underestimated the time and resources needed to integrate a merged enterprise. The actual time to required averaged nine and a half months, not the eight expected.
Employee communication. About 44% of human resource managers in mergers said their companies did not devote enough resources to employee communication programs; 43% said such programs were implemented too late to be very effective.
In addition, 39% said senior management devoted little attention to employee communications. They said confused employees were less productive and less likely to remain with the company.
Unanticipated costs. More than 75% of the executives surveyed said they encountered them, including costs associated with consolidating employee benefit plans, executive compensation costs, and higher compliance costs.
When asked to identify crucial factors in integration, 57% of the human resource directors cited employee communication. Communicating early, often, and honestly is essential to success, they said.
"The minute you announce a merger, the first thing that hits your employees is what is going to happen to them," said Jean Davis, director of human resources at Wachovia, in an interview with American Banker. "That immediately gets reflected to the customer, so the ability to communicate is very important."
When Winston-Salem, N.C.-based Wachovia bought two Virginia banking companies last year, it developed a merger-specific newsletter meant to address employee questions and concerns. The company also held a series of employee meetings around Virginia.
After communication, the next most important factors in merger integration are employee benefits and then compensation, the human resources executives told Hewitt.
And half said that merging human resources programs more quickly would reduce employee uncertainty and make many other aspects of corporate integration easier.
"The complexity associated with mergers is growing," said Wachovia's Ms. Davis. "Mergers begin and end with the people; the success of a merger is so dependent upon the way human beings get integrated."